Best Offer: Amazon Software Tech

SEATTLE -- Amazon.com founder Jeff Bezos wants the Internet retailer to offer its customers "anything, with a capital A." Add to that list the technology for building a mini-Amazon.com of one's own.

In developing a new way of selling books, music and videos over the Internet, Amazon unwittingly created its single most valuable product offering -- the technology that runs the popular shopping site.

Already, Target, Toys R Us and Gap have signed on as clients, relying on Amazon to build and run websites for them or posting their products at Amazon's site.

It's become such a promising venture that Amazon spun off this month a subsidiary, Amazon Services, to handle its technology business.

Although Amazon has posted only two quarters of profit in its history, the technology business has already aided its bottom line. And the growing venture could ensure a steady stream of revenue far into the future, even if the retailer never sells another book.

"When you have that kind of growth rate across a base as big as Amazon's ... you can't help but be excited," said Mark Stabingas, the company's vice president for worldwide business development and service sales.

The company has always prided itself on its technology. Bezos' first 10 hires were computer scientists who spent months building the guts of the website and online shopping experience.

Amazon has invested about $1 billion in technology. Its software excels at analyzing customer buying habits and tailoring the Web shopping experience to individual tastes. Shoppers get product suggestions based on their browsing patterns and the preferences of purchasers who seem to like what they like. The software also encourages shoppers to review products.

Amazon was also a pioneer in allowing registered customers to purchase goods without filling out forms each time they shop.

Selling the makings of a mini-Amazon.com wasn't in the original business plan of a company that started by selling books and has expanded to everything from movies and music to barbecue grills and Segway scooters, Stabingas said.

But in 2000, a light bulb turned on.

Amazon was having trouble identifying the hot toys. Toys R Us was having problems running an e-commerce site. The two started talking and ultimately partnered to sell Toys R Us toys at Amazon.

Amazon has since developed two primary technology services.

Through MerchantsAtAmazon.com, Gap, Nordstrom and other retailers post their products at Amazon's site. Retailers' computers link with Amazon's to keep track of inventory and sales. Amazon handles billing and gets a commission or fee, while the retailer ships the product. The company's apparel store, its fastest-growing by items sold, uses this approach.

With the other program, Merchant.com, Amazon builds and maintains a branded site for retailers. Amazon sometimes handles the shipping of items as well. Target, Borders and the National Basketball Association are among customers.

It's not the only way Amazon makes money off its technology. Small businesses and individuals also can post items for sale or auction on Amazon's site -- in exchange for a fee or sales commission.

Amazon doesn't break out sales from these businesses, but in its most recent quarter, the company said 19 percent of all items sold at Amazon.com were by third-party merchants. That's up from 13 percent for the same quarter a year ago. Analyst Jeetil Patel with Deutsche Bank said the figure could reach 33 percent by the end of next year.

Profitability is even more significant, Patel noted. When individual merchants sell items through Amazon, the giant retailer gets sales commissions that translate into almost pure profit, he said.

This might be a good way for Amazon to expand into new categories, Patel said. Instead of having to line up merchandisers and stock expensive inventory in warehouses, Amazon could simply provide the virtual marketplace for retailers who already have done the logistical legwork.

For retailers, the offer is tempting. Amazon.com already has a dedicated base of 30 million shoppers. Its technology and website work. For retailers not doing much business online, Amazon bills itself as the best ticket to success.

Carrie Johnson, senior retail analyst with Forrester Research, said the move is good for Amazon, though the company needs to show it can pursue two business focuses simultaneously without getting distracted.

"I think Amazon's biggest challenge is to bring account management and services to retailers, which is a new model for them," Johnson said.

She added that retailers expect and need a lot of handholding that Amazon might not be prepared to provide.

Still, Amazon is optimistic.

"It's fair to say it's one of the most important initiatives at the company," Stabingas said.